Crypto Bear Market: 5 Tips to Keep Your Cool Head

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Bitcoin and altcoins fall. The green signal so far has turned out to be a bear market rally. It is now all the more important to face the current market phase with the right strategies or the right mindset. So here are five tips on how to make rational decisions in the crypto market that can pay off in the long run.

Nowadays it is difficult to write and talk about anything other than the crisis in the crypto market. Most investors are losing a lot of money on their cryptocurrency and technology stocks these days. The guidance is similarly high, so that investors can quickly leave the loss zone again. The following five tips can help.

1) Should I sell all cryptocurrencies now?

The answer to this question is relatively simple. Anyone who doesn’t believe that cryptocurrencies will prevail as an asset class and only represent a temporary hype should consider selling everything.

On the other hand, if you are confident that cryptocurrencies will continue to grow, you only have to question individual positions, but not your investments in the sector. With a market cap of just $800 billion, the entire market is smaller than the five largest companies in the world. So anyone who believes that Web 3.0, NFT, DeFi, Metaverse etc. could generate more added value in the future than Microsoft, Apple or Amazon, for example, is also concerned about the future of Bitcoin, Ether and the company. Can be optimistic. After all, the entire crypto industry is subject to a certain growth compulsion. If it does not want to fail, it must be well above the current level in the long term, i.e. produce significantly different valuation levels.

2) Zooming out helps

If you visit one of the relevant price chart sites, such as BTC-ECHO, you will find that the monthly view or 24-hour view is usually preset. In the short term, this timeframe seems to interest you the most, but it can lead to an underestimation of growth. A little panic.

Therefore, it is advisable to zoom out every now and then and look at the price developments over the years. The current Bitcoin price, for example, is around the level of autumn 2020. For ether it is January 2021. One to two years can be enough for crypto newcomers. However, the reality is that such large and market-changing innovations require many years of discovery and implementation. It is normal for them to be hit by market shocks.

3) Stocks, Bonds and Commodities: Keep an eye on the macro situation

Cryptocurrency is one asset class among many. It is therefore advisable to keep an eye on the entire financial market in order to be able to classify current price developments in the overall economic context. Unprofitable tech stocks have taken a hit just like cryptocurrencies.

The crypto market is more correlated than ever, with similarly high volatility. Those who are skeptical about the prospects of cryptocurrencies due to price corrections should logically also do so for tech stocks of all kinds. Understanding that the entire financial sector is currently on high alert — with high liquidity and certain restructuring — may not help push crypto reform forward. The time when the crypto market functioned independently of financial market events is certainly over.

4) Cryptocurrencies: An irrational asset class?

Compared to other asset classes, the crypto market is quite irrational and comparatively difficult to assess. Especially since many non-professional private investors are underrepresented compared to institutional investors. This in turn also means that the courses are primarily mood-driven. Critically speaking, one can speak of fantasy courses, since their evaluation is based on the expected benefit in the future (if you look at metrics like network data and transaction volume, that’s certainly not enough).

Investors can take advantage of this market psychology by studying the behavioral finance model and the phases or cycles associated with it. These fundamentals of behavioral economics help to better understand why we and other market participants tick the way we tick. This in turn makes it possible to gain a healthy distance from one’s own actions and to classify the phase of the market in which we are currently located. The secondary model includes the Gartner Hype Cycle, i.e. the five stages of death, reinterpreted by financial analyst Barry Ritholtz.

5) Frugality pays off

Smart investing doesn’t just start with our asset selection. If you overspend on consumption, you may end up investing less money. Especially in times of high inflation, when most people are getting poorer and have to spend more on supermarket shopping or petrol, a certain amount of frugality can pay off. Especially when real estate prices are considered cheap. Every euro that you spend a lot on convenience coffee-to-go can mean three, five or more euros in a few years if invested correctly. The opportunity cost of non-frugality is now higher than it has been in many years. For this reason, switching from the car to the bicycle or preparing lunch in advance instead of ordering something from Lieferando can also be part of your own investment strategy.

After all, good and bad values ​​were often punished collectively. This means that memecoin, for example, is unlikely to have a major recovery period like DeFi or NFT protocols will. The trick now is to find the pearls pulled down excessively with the suction.

If you want a more thorough understanding of current market conditions, we recommend Current BTC-ECHO Magazine.

Disclaimer: The article reflects the personal opinion of the author only and should not be construed as investment advice in any way.

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